China Economic Growth

Decent Essays

Economic growth means the increase in the real GDP over time. It can be caused by an increase in an aggregate demand or aggregate supply. However, long-term economic growth mainly results from an increase in aggregate supply for instance increased capital, etc. Growth accounting is the tool to estimate the contributions from various sources to economic growth. It is the growth of GDP explained by weighted growth rates of other variables. It should be cleared that the growth rates of other variables need not to be the final explanation of GDP growth (Holz, 2008). It is given by: ΔY/Y=ΔA/A + α.ΔK/K + (1-α) ΔL/L. How long run aggregate supply impact growth is shown below. In China, the average economic growth rate from 1998-2013 was 9.6% (IMF, 2013). The major contributor of economic growth was capital especially the non-ICT capital and TFP. However, in the recent years TFP growth is declining and almost reached zero in 2013 but non-ICT capital is constantly growing with 6.0% growth in 2013 (CBTED, 2014). The trend on non-ICT capital and TFP from 1998 to 2013 is depicted below. (Source: based on data extracted from CB, 2014) (Source: Based on figures from CB, 2014) From the above figures, it can be seen that capital is increasing however; the growth in TFP is fluctuating. TFP has used to be the major contributor in the long-term economic growth of China. It increased continuously from -5.52% in 1998 to nearly 8% in 2003 then kept on decreasing and reached nearly zero

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